Supply Chain finance growth prospects in the EU remain strong

While the European Union is advising banks to raise more capital to protect themselves against losses on sovereign debt, 75 percent of top EU banks still believe growth prospects for Supply Chain Finance (SCF) to remain “strong” or “very strong.”

According to Demica’s latest research report on the Supply Chain Finance market conducted among the top 40 European banks, a more cautious outlook was expressed when compared to 2010 opinion, however.

“But it shows the enduring appeal of SCF despite slow economic recovery and concerns in the Eurozone,” said Demica analysts.

Respondents anticipate annual SCF growth rates between 10 percent and 30 percent per annum in mature markets, and 20-25 percent in emerging markets where the need for financing is particularly pressing to help cope with rapid expansion.

Growth over the next few years will primarily be driven by developed economies such as the U.S. and Europe, along with larger emerging economies including China and India.

Respondents to this latest Demica research noted that the financial markets crisis, followed by anaemic economic growth and current concerns about the spread of the sovereign debt crisis across the Eurozone, has propelled optimum liquidity management to the top of the financial management agenda, prompting a heightened interest in supplier financing. In mature markets, working capital optimization and reduction of supply chain risk have been identified as the primary drivers for establishing SCF programs. In emerging economies, access to liquidity and enabling suppliers to keep pace with buyers’ growth are the key motivations.

“The corporate credit squeeze triggered by the financial crisis has made companies much more aware of the need to optimize working capital and to protect their smaller suppliers in order to avoid supply chain disruptions,” said Phillip Kerle, Chief Executive Officer of Demica.

He added that, in emerging markets, suppliers might not have sufficient working capital and often have poor access to bank credit.

“By binding suppliers into a structured SCF program, buyers can ensure the financial health of their suppliers and thus secure their supply chains,” said Kerle. “This strengthened awareness has contributed to the accelerated growth of SCF in the past few years across a wide spectrum of industry segments such as retail, consumer goods and manufacturing as well as different geographic regions including Europe, the Americas and Asia.”

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